KUALA LUMPUR: Malaysia's plantation sector could receive a timely boost if the government waives crude palm oil (CPO) export tax to help clear swelling inventories, restore export competitiveness and claw back market share from Indonesia.
According to a wires report, the government is considering the proposal amid an oversupply situation, with the Plantation and Commodities Ministry expected to discuss the matter with industry players today.
Public Investment Bank (PublicInvest) analyst Chong Hoe Leong believes the proposed waiver could benefit upstream plantation companies by making Malaysian palm oil more competitive in international markets, particularly as Indonesia's exports gain ground while Malaysia grapples with mounting inventories.
"We believe the proposal would be well received and likely will take effect soon. The waiver of CPO export tax will help Malaysia regain market share from Indonesia," he said in a note.
Malaysia's CPO inventory reached a record 3.5 million tonnes last month, reflecting the pressure on exporters from the price gap between Malaysian and Indonesian palm oil.
At the current 10 per cent CPO export tax rate in Malaysia, compared with Indonesia's combined export duty and levy of US$273 per tonne (RM1,113 per tonne), Indonesian CPO has been trading at a discount of RM700 to RM900 per tonne against Malaysian prices.
"This wide discount has put Malaysia's CPO exporters at a disadvantage, resulting in a significant loss of market share to our counterparts and a record inventory level of 3.5 million tonnes last month.
"This is evident as Indonesian palm oil exports have grown, in contrast to Malaysia's lacklustre performance," Chong said.
The price differential has put Malaysian exporters at a disadvantage, contributing to weaker export performance and allowing Indonesia to capture a larger share of the global market.
A waiver could narrow the competitiveness gap and provide relief to local exporters, particularly following India's reduction of its CPO import tax to five per cent from 10 per cent.
Malaysia previously waived CPO export tax for six months in 2020.
"We suggest the CPO tax waiver should be in place until the inventory level falls below 2.0 million tonnes."
However, the benefits would not be evenly distributed across the sector.
Chnong said upstream plantation companies stand to gain from stronger demand and potentially improved selling prices, while downstream players could face margin pressure if cheaper raw materials become less readily available.
The potential policy shift comes as plantation companies prepare to report their third-quarter 2026 results, with Chong anticipating stronger earnings on the back of higher fresh fruit bunch (FFB) production, lower production costs and firmer CPO prices.
He said that all plantation companies under coverage recorded production growth, led by Ta Ann Holdings Bhd, whose output rose 30 per cent year-on-year, followed by Sarawak Plantation Bhd at 23.2 per cent and Kuala Lumpur Kepong Bhd at 16.4 per cent.
Average CPO prices also strengthened to RM4,552 per tonne in the third quarter of 2026, compared with RM4,275 per tonne a year earlier, providing further support for earnings.
Against this backdrop, Chong maintains an "Overweight" call on the plantation sector, with Sarawak Plantation and Ta Ann emerging as preferred picks for their attractive dividend yields and above-industry-average FFB production growth.
The combination of potentially stronger export competitiveness, improving production and attractive dividend yields could support the sector's performance in the second half of 2026, although the actual impact will depend on whether the government proceeds with the proposed tax waiver and how quickly inventories normalise.
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